UK: Deloitte Monday Briefing (On Tuesday): Why Corporates Are Holding Cash

Last Updated: 2 April 2013
Article by Ian Stewart

Most Read Contributor in UK, August 2017

The Monday Briefing, written by Ian Stewart, Deloitte's Chief Economist in the UK, gives a personal view on topical financial and economic issues.

  • It is a paradox that while Western governments are seeking to curb borrowing corporates are running record cash balances.
  • The hope is that as governments reduce their budget deficits corporates will start to run down their cash surpluses to fund hiring and capital spending. In an act of synchronised rebalancing, government austerity will be more than offset by corporate expansion.
  • It is an attractive idea. Yet some of the factors that have led corporates to increase cash balances look as though they are here to stay.
  • In the UK official data show corporate cash balances stood at £671 billion in the third quarter, equivalent to 46% of GDP, up from £240 billion in 2002, and close to record levels.
  • This is not just a UK phenomenon. Though representing a lower share of national GDP, cash balances in the euro area and the US have hit record levels.
  • Part of the rise in corporate cash seems likely to be a response to the Global Financial Crisis.
  • Holding more cash can be seen as a prudent response to elevated uncertainty, an insurance policy against a riskier, slower growth world.
  • The Deloitte CFO Survey shows that improving cash flow has been a high priority for major UK corporates in recent years. The fact that the cash surpluses of Italian and Spanish corporates have risen far faster than those of German corporates fits with the idea that levels of corporate cash respond to country risk.
  • It is logical, too, for companies to hold more cash in a world where banks have become less willing and able to provide credit. In such a world companies are likely to have to finance more of their own spending. Moreover, there are sound reasons for companies to finance each other, through, for instance, supply chain finance which enables corporates to transfer surplus liquidity to their cash constrained suppliers.
  • The financial crisis has probably also reduced the risk adjusted cost of holding cash for many corporates. The opportunity cost of holding cash has fallen as returns on alternative investments have declined and meanwhile the perceived risks of deploying cash have risen.
  • Yet the run up in corporate cash balances long predates the financial crisis. Other, secular factors also seem to be at work.
  • Over the last 30 years improved inventory management techniques have reduced levels of corporate working capital. To maintain a given level of working capital companies have needed to raise cash balances. What seems to have happened is that firms have reduced their inventories and substituted cash for inventories on their balance sheet.
  • Another long term change has been the growth in research and development spending by corporates. Because R&D is often funded from cash corporates have needed to run higher cash balances.
  • Globalisation and the UK's role as a global hub for multinational corporations also seem to have contributed to corporate cash piles. Many multinationals chose to hold cash in the UK, even though much of it will eventually be deployed overseas. In 2012 42% of the capital spending undertaken by the top 1000 EU non financial companies was made outside Europe. Even if big corporates were to start to spend more freely much of it would probably take place outside Europe.
  • Finally, the rapid growth in the financial sector in the last 30 years has probably been responsible for a significant part of the growth in levels of cash.
  • Indeed, it seems likely that the official UK estimate of holdings of cash by non financial corporates – at £671 billion - have been exaggerated by including a significant proportion of cash held by hedge funds, private equity and other institutional investors. The Office of National Statistics is reviewing its methodology and will produce new estimates in June. These are likely to show that non financial cash holdings, while on a clear uptrend, are significantly lower than currently estimated.
  • What do the cyclical and structural drivers signal about the future direction of corporate cash balances?
  • The most effective way of reducing the precautionary motive for holding cash would be for macroeconomic risk, credit availability and economic growth to return to pre crisis levels. Few expect that to happen soon. And even if things were to improve, corporates would probably need some convincing to believe that it was back to business as usual.
  • The financial sector is clearly in a period of change and consolidation and this could weaken one of the drivers of corporate cash flow.
  • But globalisation, more efficient inventory management and higher levels of R&D intensity are here to stay. All tend to work in favour of historically high cash balances.
  • The amount of cash being held by non financial corporates in the UK is almost certainly overstated. Yet the underlying story, in the UK, US and euro area has been of a long term rise in corporate cash. The best way of decisively reversing that trend would be to convince the corporate sector that the good times are back. But so long as markets, the media and economists worry about growth, that is unlikely to happen. A return to pre-crisis levels of corporate cash look a long way off.


UK's FTSE 100 ended the week flat.

Here are some recent news stories that caught our eye as reflecting key economic themes:


  • The Organisation for Economic Cooperation and Development (OECD) forecast the UK economy will grow 0.5% in the first quarter of 2013, avoiding a 'triple-dip' recession
  • Sentiment among Japanese manufacturers improved for the first time in three quarters according to data from the Bank of Japan's Tankan survey
  • US house prices are rising at their fastest pace since 2006, according to the Case-Shiller index, which rose by an annual rate of 8.1% in January
  • Sales of lower-rated US corporate 'junk bonds' rose to their highest weekly level in 2013, with $16bn of bonds going through capital markets, according to data from Dealogic and EPFR
  • Official figures showed France's nominal government deficit was 4.8% in 2012, missing its stated target of 4.5% for the year
  • The global pool of 'triple-A' rated government bonds, as rated by the top three global ratings agencies, has shrank by more than 60% since the onset of the global financial crisis according to Financial Times analysis
  • A £20m UK government scheme to lend to small businesses via the online peer-to-peer lender "Funding Circle" was officially launched
  • Tui Travel, owner of Thompson and First Choice, reported a 9% rise in UK summer holiday bookings compared with the same time last year, with people looking to escape the bad weather
  • The price of US natural gas rose to its highest level in a year and a half, with unseasonably cold conditions in big cities driving demand for fuel
  • Billionaire investor Warren Buffet became one of Goldman Sachs ten biggest shareholders, converting $5bn of share options which were purchased in September 2008
  • US private company Bristow Group won a 10-year contract, starting in 2015, to run the UK's helicopter search and rescue operations
  • Foxconn, which assembles many of the electronic products designed by Apple and Samsung, reported a record annual profit of $3.2bn, benefitting from last year's iPhone 5 release
  • Internet firm Yahoo! acquired Summly, an app that aggregates news stories, from its 17-year old British creator Nick D'Aloisio for "dozens of millions of Pounds"
  • US corn futures fell sharply on news of higher than expected stocks and government survey data suggesting farmers plan this year to plant the most corn since the Dust Bowl year of 1936
  • The number of people registering for membership of churches in the City of London has increased by 24% from 2007 according to figures released by the Diocese of London
  • The Financial Times reported that some eurozone politicians have light-heartedly discussed a potentially more appealing eurozone bailout, whereby citizens of northern European countries are given holiday vouchers that can only be used in Greece, Spain, Portugal or Cyprus – "Club Med option"

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.